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Time Magazine
6 days ago
- Business
- Time Magazine
How to Limit Medical Debt's Impact on Your Credit
For the millions of Americans struggling to pay off the costs of expensive medical procedures, the looming debt is accompanied by another threat: that the unpaid medical bills could drag down their credit scores, making it harder to get a credit card or buy a home or car. And now a rule that would have addressed that issue will no longer be going into effect. In the final days of President Joe Biden's term, the Consumer Financial Protection Bureau (CFPB) issued a rule that would have removed medical debt from credit reports. The goal was to 'reduce the burden of medical debt and ensure that patients are not denied access to credit for home mortgages, car loans, or small business loans due to unpaid medical bills,' according to the White House press release at the time. But under the Trump Administration, the CFPB flipped its stance on the rule, which had not yet gone into effect. And on Friday, a federal judge, who was appointed by President Donald Trump, vacated the rule, stating that it exceeded the CFPB's authority under the Fair Credit Reporting Act. Roughly $88 billion of unpaid medical bills are in collections across the U.S., according to the CFPB, which estimates that the issue affects about one in five Americans. JoAnn Volk, a research professor and co-director of the Center on Health Insurance Reforms at Georgetown University, says the judge's ruling 'eliminates an important protection for families who are going to be shut out of credit because of this medical debt that they could not avoid.' How medical debt impacts credit CFPB research has indicated that medical debt on credit reports is 'a poor predictor' of whether a person will repay a loan, but still 'contributes to thousands of denied applications on mortgages that consumers would be able to repay,' the agency said at the time the Biden-era rule was finalized. 'We know from prior studies that medical debt does not have meaningful predictive power for people's credit worthiness. Part of the reason is that medical debt, more than any other form of debt, is the result of bad luck, not bad financial behavior,' says Neale Mahoney, an economics professor at Stanford University and director of the Stanford Institute for Economic Policy Research. 'Nobody plans to go to the hospital or have a kid slip and fall and need to be rushed to the ER and have to pay those medical bills; that is just bad luck.' The Biden-era rule would have led to the approval of about 22,000 additional, affordable mortgages annually, and the credit scores of people with medical debt on their credit reports would increase by an average of 20 points, the CFPB estimated. Mahoney says vacating it will reduce credit access for people struggling with medical debt. There are some steps that can be taken to mitigate that impact—though they're limited. Financial assistance options Mahoney advises people who find themselves faced with burdensome medical bills to first take advantage of their hospital's or physician's financial assistance program. Many hospitals have such programs, which are often listed on the back of the bill, that can reduce or sometimes even eliminate the cost depending on a patient's income or assets. 'It can be a slog to work through the process, but for many people, addressing the issue with the hospital is better than letting that issue fester and then become a medical debt with a debt collector,' Mahoney says. There are some organizations, like Dollar For, that help patients navigate these financial assistance programs. The CFPB offers some general tips for people dealing with medical debt, such as confirming the unpaid bill with the appropriate source, contacting their insurer if they believe the service should have been covered, and disputing any errors in the bill or credit report. Debt payment plans If a person's debt has been sold to a debt collector and they're concerned about its potential impact on their credit score, Mahoney recommends that they try and negotiate a payment plan with the debt collection company. Sometimes, a debt collector may be open to receiving a payment that is more within reach for the patient and, in turn, removing that debt from the credit report, he says.
The Herald Scotland
7 days ago
- Business
- The Herald Scotland
Judge scrubs Biden medical debt rule at Trump admin's request
The medical debt rule, finalized in January before former President Joe Biden left office, would've banned medical debt on credit reports and prohibited lenders from using a person's medical debt history to make lending decisions. The rule was scheduled to take effect in March, but the two trade groups sued the Consumer Financial Protection Bureau to halt the rule, and Jordan issued a stay, delaying the rule's start date. In late April, the Trump-appointed CFPB leadership opted not to oppose the lawsuit and filed a joint motion with the financial industry groups - the Consumer Data Industry Association and Cornerstone Credit Union League - to ask the judge to vacate the medical debt rule. Jordan, appointed during Trump's first administration, agreed with the trade groups that it was "fair, adequate and reasonable" to vacate the medical debt rule because it exceeded the CFPB's authority under the Fair Credit Reporting Act. Medical debt 'will likely get worse' Patricia Kelmar, senior director of health care campaigns at the U.S. PIRG Education Fund, said rule was necessary due to protect consumers from medical debt errors on credit reports. Medical bills accounted for more than half of debt collection on consumers' credit records, according to a 2022 report from the CFPB. "The problem is still here and will likely get worse," Kelmar said. "Medical debt on credit reports is disputed nearly three times as frequently as credit card debt." She said many of the 15 million Americans with medical debt on their credit reports are "penalized with lower credit scores, not because they owe the bill, but because they are still fighting it, or the hospitals reported it wrong." But industry groups cheered the decision. The medical debt rule would've potentially dealt lenders an "inaccurate and incomplete picture when making lending decisions," Dan Smith, president and CEO of the Consumer Data Industry Association, said in a statement. "Information about unpaid medical debts is an important element in assessing a consumer's ability to pay," Smith said. "This is the right outcome for protecting the integrity of the system." Paid medical debts, unpaid medical debts less than a year old and medical debts less than $500 already have been removed from credit reports by the three largest credit reporting companies. However, with the medical debt rule scrubbed, consumers can still expect larger medical debts to appear on credit reports. The decision comes as the Trump's sweeping tax cut and spending law could jeopardize health insurance coverage for millions of Americans in the coming years. The law would cut about $1 trillion from Medicaid and Affordable Care Act insurance plans, eliminating insurance coverage for 11.8 million people over the next decade, according to the nonpartisan Congressional Budget Office. Another 5 million could lose health insurance because the law doesn't extend Biden's COVID-19 pandemic-era tax credits that made ACA plans cheaper for consumers, according to a previous CBO analysis.
New York Post
7 days ago
- Business
- New York Post
Federal judge reverses rule that would have removed medical debt from credit reports
A federal judge in Texas removed a Biden-era finalized ruled by the Consumer Financial Protection Bureau that would have removed medical debt from credit reports. U.S. District Court Judge Sean Jordan of Texas's Eastern District, who was appointed by Trump, found on Friday that the rule exceeded the CFPB 's authority. Jordan said that the CFPB is not permitted to remove medical debt from credit reports according to the Fair Credit Reporting Act, which protects information collected by consumer reporting agencies. Advertisement U.S. District Court Judge Sean Jordan eliminated a rule enforced by the Biden administration from the Consumer Financial Protection Bureau that would have gotten rid of medical debt from credit reports. DC Studio – Removing medical debts from consumer credit reports was expected to increase the credit scores of millions of families by an average of 20 points, the bureau said. The CFPB states that its research has shown outstanding healthcare claims to be a poor predictor of an individual's ability to repay a loan, yet they are often used to deny mortgage applications. Advertisement The three national credit reporting agencies — Experian, Equifax, and TransUnion — announced last year that they would remove medical collections under $500 from U.S. consumer credit reports. The CFPB's rule was projected to ban all outstanding medical bills from appearing on credit reports and prohibit lenders from using the information. The Trump-appointed judge said the CFPB can't get rid of medical debt from credit reports as part of the Fair Credit Reporting Act. AP The CFPB estimated the rule would have removed $49 million in medical debt from the credit reports of 15 million Americans. Advertisement According to the agency, one in five Americans has at least one medical debt collection account on their credit reports, and over half of the collection entries on credit reports are for medical debts. The problem disproportionately affects people of color, the CFPB has found: 28% of Black people and 22% of Latino people in the U.S. carry medical debt versus 17% of white people. The CFPB was established by Congress after the 2008 financial crisis to monitor credit card companies, mortgage providers, debt collectors and other segments of the consumer finance industry. Earlier this year, the Trump administration requested that the agency halt nearly all its operations, effectively shutting it down.
USA Today
7 days ago
- Business
- USA Today
Medical debt remains on credit reports after Biden-era rule tossed by judge
Consumers were dealt a blow after a federal judge in Texas tossed out a Biden-era rule that would have banned the inclusion of medical debt on credit reports. In a move that advocates told USA TODAY eliminates a vital consumer protection, U.S. District Judge Sean Jordan on July 11 granted a request from President Donald Trump's administration and two financial industry groups to vacate the medical debt rule. The medical debt rule, finalized in January before former President Joe Biden left office, would've banned medical debt on credit reports and prohibited lenders from using a person's medical debt history to make lending decisions. The rule was scheduled to take effect in March, but the two trade groups sued the Consumer Financial Protection Bureau to halt the rule, and Jordan issued a stay, delaying the rule's start date. In late April, the Trump-appointed CFPB leadership opted not to oppose the lawsuit and filed a joint motion with the financial industry groups – the Consumer Data Industry Association and Cornerstone Credit Union League – to ask the judge to vacate the medical debt rule. Jordan, appointed during Trump's first administration, agreed with the trade groups that it was "fair, adequate and reasonable" to vacate the medical debt rule because it exceeded the CFPB's authority under the Fair Credit Reporting Act. Medical debt 'will likely get worse' Patricia Kelmar, senior director of health care campaigns at the U.S. PIRG Education Fund, said rule was necessary due to protect consumers from medical debt errors on credit reports. Medical bills accounted for more than half of debt collection on consumers' credit records, according to a 2022 report from the CFPB. "The problem is still here and will likely get worse," Kelmar said. "Medical debt on credit reports is disputed nearly three times as frequently as credit card debt." She said many of the 15 million Americans with medical debt on their credit reports are "penalized with lower credit scores, not because they owe the bill, but because they are still fighting it, or the hospitals reported it wrong." But industry groups cheered the decision. The medical debt rule would've potentially dealt lenders an "inaccurate and incomplete picture when making lending decisions," Dan Smith, president and CEO of the Consumer Data Industry Association, said in a statement. "Information about unpaid medical debts is an important element in assessing a consumer's ability to pay," Smith said. "This is the right outcome for protecting the integrity of the system." Paid medical debts, unpaid medical debts less than a year old and medical debts less than $500 already have been removed from credit reports by the three largest credit reporting companies. However, with the medical debt rule scrubbed, consumers can still expect larger medical debts to appear on credit reports. The decision comes as the Trump's sweeping tax cut and spending law could jeopardize health insurance coverage for millions of Americans in the coming years. The law would cut about $1 trillion from Medicaid and Affordable Care Act insurance plans, eliminating insurance coverage for 11.8 million people over the next decade, according to the nonpartisan Congressional Budget Office. Another 5 million could lose health insurance because the law doesn't extend Biden's COVID-19 pandemic-era tax credits that made ACA plans cheaper for consumers, according to a previous CBO analysis.
San Francisco Chronicle
7 days ago
- Business
- San Francisco Chronicle
Federal judge reverses rule that would have removed medical debt from credit reports
NEW YORK (AP) — A federal judge in Texas removed a Biden-era finalized ruled by the Consumer Financial Protection Bureau that would have removed medical debt from credit reports. U.S. District Court Judge Sean Jordan of Texas's Eastern District, who was appointed by Trump, found on Friday that the rule exceeded the CFPB 's authority. Jordan said that the CFPB is not permitted to remove medical debt from credit reports according to the Fair Credit Reporting Act, which protects information collected by consumer reporting agencies. Removing medical debts from consumer credit reports was expected to increase the credit scores of millions of families by an average of 20 points, the bureau said. The CFPB states that its research has shown outstanding healthcare claims to be a poor predictor of an individual's ability to repay a loan, yet they are often used to deny mortgage applications. The three national credit reporting agencies — Experian, Equifax, and TransUnion — announced last year that they would remove medical collections under $500 from U.S. consumer credit reports. The CFPB's rule was projected to ban all outstanding medical bills from appearing on credit reports and prohibit lenders from using the information. The CFPB estimated the rule would have removed $49 million in medical debt from the credit reports of 15 million Americans. According to the agency, one in five Americans has at least one medical debt collection account on their credit reports, and over half of the collection entries on credit reports are for medical debts. The problem disproportionately affects people of color, the CFPB has found: 28% of Black people and 22% of Latino people in the U.S. carry medical debt versus 17% of white people. The CFPB was established by Congress after the 2008 financial crisis to monitor credit card companies, mortgage providers, debt collectors and other segments of the consumer finance industry. Earlier this year, the Trump administration requested that the agency halt nearly all its operations, effectively shutting it down. 'The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.'
